Price Lock And Media Launch Will Redefine Rideshare In 2025

Key Takeaways

• Expanding high-margin offerings and innovative services is expected to enhance margins, revenue, and transform operational costs.
  
• Strategies like Price Lock, in-app advertising, and autonomous partnerships aim to boost loyalty, retention, and future growth.
  
• Lyft faces pressure on growth and margins due to partnerships ending, pricing dynamics, insurance costs, competition, and seasonal demand fluctuations.

Catalysts

Operates a peer-to-peer marketplace for on-demand ridesharing in the United States and Canada.

• Lyft has reached all-time highs in rides, riders, and driver hours, indicating strong demand and market share growth, which is expected to positively impact future revenue and earnings.
  
• Innovations like Price Lock and reduced surge pricing are leading to increased rider loyalty and satisfaction, potentially increasing ride frequency and retaining high-frequency riders, thereby positively affecting future revenue.
  
• Plans to expand high-margin offerings like Lyft Black and Lyft SUV are driving growth in high-margin segments, expected to enhance net margins.
  
• The launch of Lyft Media and in-app advertising is anticipated to grow significantly, aiming to reach a $100 million annualized run rate by the end of 2025, which will contribute to higher margins and improved earnings.
  
• Expanding autonomous vehicle partnerships with May Mobility and Marubeni provides growth opportunities through innovative services and rideshare market expansion, expected to drive future revenue and transform the operational cost structure.

Lyft Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Lyft's revenue will grow by 12.0% annually over the next 3 years.
• Analysts assume that profit margins will increase from 0.4% today to 3.2% in 3 years time.
• Analysts expect earnings to reach $262.8 million (and earnings per share of $0.56) by about April 2028, up from $22.8 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $594.9 million in earnings, and the most bearish expecting $50.6 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 35.7x on those 2028 earnings, down from 200.7x today. This future PE is greater than the current PE for the US Transportation industry at 24.1x.
• Analysts expect the number of shares outstanding to grow by 3.6% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.71%, as per the Simply Wall St company report.

Lyft Future Earnings Per Share Growth

Risks

• The ending of Lyft's partnership with Delta in April 2025 is expected to impact growth, potentially reducing rides and gross bookings by 1 to 2 percentage points, which could affect overall revenue.
  
• Lower pricing dynamics that began in late 2024 have persisted, indicating downward pressure on prices and current gross bookings, which could squeeze net margins if not managed with cost efficiency.
  
• Increased insurance costs, although being addressed, continue to challenge Lyft's platform cost structure, potentially impacting net margins and profitability if such costs rise faster than anticipated efficiencies.
  
• The entrance of autonomous vehicles and expanding competition from companies like Waymo in key markets could pose a risk to market share gains and revenue, as these developments might alter demand patterns.
  
• Continued seasonal and macroeconomic factors, such as decreased rider demand in Q1 due to typical post-holiday activity declines and adverse weather, could result in softer booking growth and affect revenue stability throughout early 2025.

Valuation

• The analysts have a consensus price target of $16.201 for Lyft based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $26.0, and the most bearish reporting a price target of just $10.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $8.1 billion, earnings will come to $262.8 million, and it would be trading on a PE ratio of 35.7x, assuming you use a discount rate of 7.7%.
  
• Given the current share price of $10.94, the analyst price target of $16.2 is 32.5% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.